13 ways to manage your money during Inflation and recessions

With inflation and recession concerns looming, many are already shifting their financial habits to the present reality of an economic downturn. According to recent polls, a staggering 74% of Americans are altering their financial strategies to prepare for a recession, and the reality is that vulnerable populations, such as women, minorities, and low-income workers, often feel even less prepared.

According to Bankrate, These are the 13 ways to manage your money during Inflation and recessions

1. Assess your financial starting point

Before you can improve your financial situation, you must first know where you stand. Review all your accounts checking, savings, and retirement and make a list of all your debts. Knowing how much you owe versus what you own will help you set realistic financial goals. Knowing your net worth (assets minus liabilities) helps you set achievable goals. Focus on tackling high-interest debts first, as they cost you the most over time, potentially saving thousands in interest payments.

2. Organise your bills and due dates

Start by creating a clear list of your monthly expenses, including fixed bills (rent, utilities) and fluctuating ones (credit card minimums, subscriptions). Write down their due dates and set automatic payments of your listed bills and utilities by your choice of financial institution. Keeping track of due dates ensures that you never miss a payment, which can hurt your credit score, especially during a recession.

Read also: Nigeria’s inflation crisis: How rising costs are deepening the divide

3. Track your monthly cash flow

Understanding your cash flow is crucial, basically differentiating between your needs and wants. Tally your post-tax income, including any side hustles or passive income, and subtract your total expenses. Use a budget calculator to track your spending. The difference between income and spending will reveal your financial strengths and areas for improvement. To beat the challenges of taking track of our monthly cash flow, there are free financial applications that will seamlessly help you track daily, month-to-yearly income and total expenses as categories by you.

4. Identify areas to cut down on spending

Take a close look at where your money is going. Are there non-essential expenses you can cut back on? For instance, if you’re spending too much on dining out, consider meal planning and cooking at home, handling some manual jobs you can do yourself. Also, reduce waste by making your utilities more efficient (e.g., fixing leaks, switching light bulbs).

5. Set up a realistic budget

It’s tempting to cut out all discretionary spending in tough times, but it’s important to maintain a balanced budget that doesn’t sacrifice your mental well-being. The 50/30/20 rule is a popular budgeting method: 50% of your income should be budgeted toward your needs like rent or mortgage, utilities, groceries, transportation, and minimum loan payment. 30% of your income should be your wants, things like dining out, gym memberships, vacations, movie tickets, subscriptions, and other hobbies while 20% of your income should be budgeted on saving and/or paying off debt like Short-term savings, Long-term savings, Additional loan repayment.

6. set short-term savings goals

Focus on goals you can achieve within 6 months to 5 years. This might include building an emergency fund of 3-6 months’ worth of expenses, saving for a wedding, or planning a vacation. Small, depositing for a new apartment, attainable goals will make you feel more secure and motivated during uncertain economic times.

7. Set long-term savings goals

Don’t forget about the future. Set aside money for long-term goals that will take at least five years to achieve. These might include saving for retirement, your child’s education, or paying off a mortgage. Adjust these goals as your circumstances change to ensure they remain relevant.

Read also: Inflation deepens social divide in Nigeria: Who pays the price?

8. Open separate accounts for savings goals

Separate your savings by purpose to avoid dipping into funds meant for long-term goals. A high-yield savings account, money market account, or certificate of deposit (CD) are great options for parking your savings and earning interest while keeping the funds accessible for specific goals.

9. Develop debt repayment strategies

If you have debt, especially during a recession when income may be uncertain, prioritise paying it off. Consider strategies like debt snowball by Paying off smaller debts first for quick wins, Debt Avalanche Paying off higher-interest debt first to minimize overall interest, and Debt Consolidation, specifically paying off debts and consolidating high-interest debts into one loan to manage payments more easily.

10. Set up automatic transfers

Automate your bill payments and savings contributions. Setting up automatic transfers for rent, utilities, insurance, and savings ensures that your obligations are met on time and that you don’t accidentally forget to save. It also helps smooth out the fluctuations in your monthly spending. You must keep track of these bills to cancel payments when you no longer want the service.

11. Maintain good credit habits

Maintaining a high credit score is essential for securing favourable rates on loans, mortgages, and credit cards, particularly in uncertain times. Pay bills on time, keep your credit card balances low, and avoid opening new accounts unnecessarily. The lower your credit utilisation, the better your credit score will be.

12. Start saving for retirement

It’s never too early to begin retirement planning. Even small contributions can grow significantly over time thanks to compound interest. Consider a 401(k), especially if your employer offers a matching contribution, or an IRA (Traditional or Roth) to start building your nest egg.

13. Establish a money management routine

Regularly reviewing your finances will help you stay on top of your goals. Set aside time each week or month to review your budget, assess your savings, and adjust your spending habits if needed. A consistent routine helps you stay disciplined and prepared for any economic challenges ahead.